Delphi reaches labor deal with UAW and GM

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Delphi reaches labor deal with UAW, GMDeal, if approved, would include one-time payouts from GM in exchange for lower hourly wages for Delphi workersLink to Original Article @ CNNMoney.com | June 22 2007: 9:12 PM EDT

CHICAGO (Reuters) -- Delphi Corp. said Friday it had reached a tentative deal with the United Auto Workers and former parent General Motors Corp. intended to allow the auto parts maker to cut wages and emerge from bankruptcy.

The deal, which must be ratified by UAW members and approved by federal bankruptcy court, would clear a major risk for former Delphi parent GM (down $0.43 to $35.53, Charts, Fortune 500), which remains Delphi's biggest customer and heads into its own high-stakes labor talks with the union next month.

Terms of the proposed contract were not disclosed but include one-time payouts from GM in exchange for lower wages, a person involved in the negotiations said.

Hourly wages at Delphi would run up to $18.50 per hour under the deal, the person said. That would be a steep cut from the roughly $27 per hour workers earn now, but up sharply from early Delphi demands to cut hourly wages to as low as about $10.

Delphi, which filed for bankruptcy in October 2005, had been looking for steep cuts in wages and benefits as well as the flexibility to close or sell plants in order to compete against low-wage parts suppliers from China and elsewhere.

"The announcement today is a pretty big step in the right direction," said Bob Schulz, a managing director at Standard & Poor's.

GM, which spun off Delphi in 1999, has estimated its exposure to the Delphi restructuring at $7 billion and said it could take a charge of $1 billion this quarter for a settlement.

The long-running impasse at Delphi had been seen as a major risk to GM since any work stoppage at Delphi had the potential to shut down production at the automaker and cost billions of dollars.

"The major risk - the threat of a strike - would now appear to be remote. From that standpoint, it's favorable news for GM," said Kam Hon, a credit analyst at DBRS.

UAW officials met with leaders from the Delphi local chapters Friday afternoon in Detroit to brief them on the details of the agreement. Some union local officials said they could hold briefing meetings at the local units as soon as Sunday.

The UAW is expected to be seeking a quick ratification vote for the agreement. Delphi plants shut down for a two-week period around July 1 and the UAW is set to begin a round of contract talks with GM and the other U.S.-based automakers later in July.

"I don't think anyone would go to the rank-and-file with a deal they didn't think would be ratified," CRT Capital Group senior analyst Kirk Ludtke said. "The UAW leadership has a very good track record for getting their deals ratified."

It will be the first contract vote for many Delphi workers. The parts maker has hired thousands of workers to replace those who took buyouts or retirements last year.

About 20,000 workers represented by the UAW - or the International Union of Electrical Workers-Communications Workers of America - took such buyouts. Their replacements were hired at lower wages and benefits.

UAW leaders rejected a Delphi contract proposal in March, but submitted a detailed counter-offer in May and GM CEO Rick Wagoner said the sides were making progress in early June.

Delphi has planned to cut 21 of 29 U.S. plants and about four-fifths of its U.S. hourly workforce in the reorganization. It plans to exit several businesses and has said it expected to cut thousands of salaried workers worldwide as well.

On June 15, Delphi filed court papers requesting an extension on its sole right to file a reorganization plan through the end of 2007, though it said it still planned to emerge from bankruptcy by the end of the year.

The deal with the UAW could give Delphi a template for negotiating new agreements with its other unions, analysts said. The parts supplier also must complete negotiations with investors on a capital infusion.

Delphi has been pursuing a $3.4 billion equity plan led by Appaloosa Management LP and Cerberus Capital Management LP to support its emergence from bankruptcy, which has remained contingent on deals with its unions and GM.

Cerberus, which is acquiring Chrysler from DaimlerChrysler AG, is expected to withdraw from the plan and Delphi expects some changes. Highland Capital Management, the second biggest Delphi shareholder after Appaloosa, also has been considering a possible alternative to the current plan.

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In a related topic, anyone see AutolineDetroit with Gettlefinger on this week?

He pontificated on National Healthcare for the first half, avoided any substantive discussion about any issue and denied knowing anything about Goodyear's historic agreement with its Union regarding a lump sum payment and trust for retiree benefits...

I'm sorry, but if he's the best leader that bunch can produce, they're in bigger trouble than we all might think.